The E-commerce Entities cannot be made liable for sale of fake products by third parties if ‘due diligence’ requirements are duly observed: Delhi High Court
Very recently, in a case involving sale of fake products through online platforms, the High Court of Delhi (“HC”) has held that, unless an active role is disclosed in the complaint, an e-commerce entity would be protected under section 79* of the Information Technology Act, 2000 (“I.T. Act”) which provides a “safe harbour” to “intermediaries” from liabilities for any third-party information, data, or communication link hosted on their platforms. Such protection is, however, granted if the intermediary duly observes “due diligence” obligations under Rule 3** of the I.T. Guidelines. The HC has further stated that the obligation to take down the offending material/sites, etc., from the online platform would arise only on service of a court order upon the intermediary.
In this case, Flipkart being the petitioner prayed for quashing of FIR registered against it. It was alleged that Flipkart knowingly permitted the sale of fake products through its online platform and thus, committed offences under section 63*** of the Copyright Act, 1957 and Sections 103****/104***** of the Trademarks Act, 1999. The FIR was filed by Sanash Impex Pvt. Ltd. which had the absolute and exclusive right to sell DC DERMACOL cosmetic products in India, both online and off-line. DC DERMACOL is the product of a reputed international make-up brand. However, noticing that fake products were being sold through Flipkart’s platform using the name of their brand, Sanash Impex Pvt. Ltd. intimated the same to Flipkart. But, since no action was taken by Flipkart according to such information, Sanash Impex Pvt. Ltd. lodged the said FIR against Flipkart for illegally selling the products of DC DERMACOL cosmetics and alleged that this was done in connivance with the fake/unauthorized re-sellers. It was further alleged that Flipkart refused to take down the offending sites (through which fake products were being sold) even after “actual information” had been sent to it in this regard.
Rejecting the above contentions, the HC quashed the FIR and explained that the standard for fixing criminal liability is far higher than that for civil liability. The criminal liability is established only after giving proof “beyond reasonable doubt”. But, for civil liability, just a “balance of probabilities” would suffice. Therefore, such higher standard should be maintained for determining the criminal liability of an intermediary as well for any action or inaction. It would also be justified that when the intermediaries have been granted the “safe harbour” for civil liability, and when a higher standard of culpability is required for a criminal prosecution, such “safe harbour” should be available even in respect of criminal prosecution. Thus, unless an active role is disclosed in the commission of the offences complained of, the intermediary would be entitled to claim protection under Section 79 of the I.T. Act. In other words, when compliance with the “due diligence” requirement under Rule 3 of the I.T. Guidelines is evident, the exclusion of liability under Section 79 of the I.T. Act would include exclusion from criminal prosecution.
The HC further held that the petitioner has duly complied with the requirement of “due diligence” under Rule 3(2) of the I.T. Guidelines by putting it on their “Terms of Use” under the title of the “use of the platform” and “selling”, that
“the users cannot display what belongs to another person and over which they have no right; or which infringes upon or violates any third party’s rights, including but not limited to intellectual property rights, rights of privacy or rights of publicity; or promotes an illegal or unauthorized copy of another person’s copyrighted work; or infringes any patent, trademark, copyright, proprietary rights, third-party’s trade secrets, rights of publicity or privacy, or is fraudulent or involves the sale of counterfeit or stolen items; or which violates any law for the time being in force.”
While answering the question whether the information provided by the complainant would suffice to obligate the petitioner to take down the allegedly offending information/sites/products, the HC concluded that the onerous nature of such an obligation was evident when the number of transactions of all nature on the e-market portal were to be considered. It cannot be expected that “actual knowledge” requiring the removal of access, etc., under Rule 3(2)(d) of the I.T. Guidelines could be derived on the complaint submitted by a party, without a court order. The claim to a trademark or copyright is often a stoutly contested affair even before a civil court. The intermediaries are certainly not in a position to determine the correctness of a claim by a complainant to a trademark or copyright. For instance, it could be a violator/infringer, who may complain to the intermediary against the registered owner of a trademark or copyright to prevent use by such registered owner. If such a complaint alone was sufficient to take down the infringing material, the havoc that can be caused to e-commerce is beyond imagination.
A copy of the judgment is attached herewith for your ease of reference.
Source: Delhi High Court
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*Section 79 of Information Technology Act, 2000
Exemption from liability of intermediary in certain cases. –
(1) Notwithstanding anything contained in any law for the time being in force but subject to the provisions of sub-sections (2) and (3), an intermediary shall not be liable for any third-party information, data, or communication link made available or hosted by him.
(2) The provisions of sub-section (1) shall apply if-
(a) the function of the intermediary is limited to providing access to a communication system over which information made available by third parties is transmitted or temporarily stored or hosted; or
(b) the intermediary does not-
(i) initiate the transmission,
(ii) select the receiver of the transmission, and
(iii) select or modify the information contained in the transmission;
(c) the intermediary observes due diligence while discharging his duties under this Act and also observes such other guidelines as the Central Government may prescribe in this behalf.
(3) The provisions of sub-section (1) shall not apply if-
(a) the intermediary has conspired or abetted or aided or induced, whether by threats or promise or othorise in the commission of the unlawful act;
(b) upon receiving actual knowledge, or on being notified by the appropriate Government or its agency that any information, data or communication link residing in or connected to a computer resource, controlled by the intermediary is being used to commit the unlawful act, the intermediary fails to expeditiously remove or disable access to that material on that resource without vitiating the evidence in any manner.
Explanation. -For the purpose of this section, the expression “third party information” means any information dealt with by an intermediary in his capacity as an intermediary.]
**3 of the I.T. Guidelines
Due diligence to be observed by intermediary — The intermediary shall observe following due diligence while discharging his duties, namely: —
(1) The intermediary shall publish the rules and regulations, privacy policy and user agreement for access-or usage of the intermediary’s computer resource by any person.
(2) xxx xxx xxx
(d) infringes any patent, trademark, copyright or other proprietary rights;
(e) to (i) xxx xxx
(3) The intermediary shall not knowingly host or publish any information or shall not initiate the transmission, select the receiver of transmission, and select or modify the information contained in the transmission as specified in sub-rule (2):
provided that the following actions by an intermediary shall not amount to hosing, publishing, editing or storing of any such information as specified in sub-rule:(2) —
(a) xxx xxx
(b) removal of access to any information, data or communication link by an intermediary after such information, data or communication link comes to the actual knowledge of a person authorised by the intermediary pursuant to any order or direction as per the provisions of the Act;
(4) The intermediary, on whose computer system the information is stored or hosted or published, upon obtaining knowledge by itself or been brought to actual knowledge by an affected person in writing or through email signed with electronic signature about any such information as mentioned in sub-rule (2) above, shall act within thirty six hours and where applicable, work with user or owner of such information to disable such information that is in contravention of sub-rule (2). Further the intermediary shall preserve such information and associated records for at least ninety days for investigation purposes;
(5) The Intermediary shall inform its users that in case of non-compliance with rules and regulations, user agreement and privacy policy for access or usage of intermediary computer resource, the Intermediary has the right to immediately terminate the access or usage lights of the users to the computer resource of Intermediary and remove noncompliant information.
(6) to (11) xxx xxx xxx,
*** Section 63 of Copyright Act, 1957
Offence of infringement of copyright or other rights conferred by this Act.—Any person who knowingly infringes or abets the infringement of—
(a) the copyright in a work, or
(b) any other right conferred by this Act, 1[except the right conferred by section 53A] 1[except the right conferred by section 53A]” 2[shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to three years and with fine which shall not be less than fifty thousand rupees but which may extend to two lakh rupees: Provided that 3[where the infringement has not been made for gain in the course of trade or business] the court may, for adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment for a term of less than six months or a fine of less than fifty thousand rupees.] Explanation.—Construction of a building or other structure which infringes or which, if completed, would infringe the copyright in some other work shall not be an offence under this section.
**** Sections 103 of Trademark Act, 1999
Penalty for applying false trade marks, trade descriptions, etc.—Any person who—
(a) falsifies any trade mark; or
(b) falsely applies to goods or services any trade mark; or
(c) makes, disposes of, or has in his possession, any die, block, machine, plate or other instrument for the purpose of falsifying or of being used for falsifying, a trade mark; or
(d) applies any false trade description to goods or services; or
(e) applies to any goods to which an indication of the country or place in which they were made or produced or the name and address of the manufacturer or person for whom the goods are manufactured is required to be applied under section 139, a false indication of such country, place, name or address; or
(f) tampers with, alters or effaces an indication of origin which has been applied to any goods to which it is required to be applied under section 139; or
(g) causes any of the things above-mentioned in this section to be done, shall, unless he proves that he acted, without intent to defraud, be punishable with imprisonment for a term which shall not be less than six months but which may extend to three years and with fine which shall not be less than fifty thousand rupees but which may extend to two lakh rupees: Provided that the court may, for adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment for a term of less than six months or a fine of less than fifty thousand rupees.
*****Section 104 of Trademark Act, 1999
Penalty for selling goods or providing services to which false trade mark or false trade description is applied.—Any person who sells, lets for hire or exposes for sale, or hires or has in his possession for sale, goods or things, or provides or hires services, to which any false trade mark or false trade description is applied or which, being required under section 139 to have applied to them an indication of the country or place in which they were made or produced or the name and address of the manufacturer, or person for whom the goods are manufactured or services provided, as the case may be, are without the indications so required, shall, unless he proves,—
(a) that, having taken all reasonable precautions against committing an offence against this section, he had at the time of commission of the alleged offence no reason to suspect the genuineness of the trade mark or trade description or that any offence had been committed in respect of the goods or services; or
(b) that, on demand by or on behalf of the prosecutor, he gave all the information in his power with respect to the person from whom he obtained such goods or things or services; or
(c) that otherwise he had acted innocently, be punishable with imprisonment for a term which shall not be less than six months but which may extend to three years and with fine which shall not be less than fifty thousand rupees but which may extend to two lakh rupees: Provided that the court may, for adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment for a term of less than six months or a fine of less than fifty thousand rupees.
